would effectively prohibit any sale of shareseven a minority of sharesin a Royal Mail company. I have made clear again why this is not desirable and why Royal Mail needs a strategic partner to help transform

24 Mar 2009 : Column 605

the business. The details of the partnership have yet to be negotiated. I therefore ask my noble friend Lady Turner to have a little more patience, if she would not mind. I am sure that that generosity will be extended to me. But it is clear that potential partners will be motivated and driven only if they have a real stake in the business, and we want them to have such a stake. As I have said, hiring in a consultancysort of McKinsey-styleor contracting out work, as if we are just talking about the transformation of a single operation somewhere in the country, would simply not begin to have the same effect or results. If these amendments were passed it would kill off the partnership arrangements and, in doing so, would threaten the future of the business and therefore the maintenance of the universal service provided by Royal Mail, which it is the intention of this legislation to sustain for the future.

Amendment 12 removes the duty on the Secretary of State to designate Royal Mail Group as a Royal Mail company before the current restrictions in the Postal Services Act can be removed. This duty was included in the Bill to give an assurance that Royal Mail Group Ltd would be designated and must therefore at all times be publicly owned. The amendment itself is arguably consequential on Amendment 97, but the provision in question provides an important additional protection that we would not wish to see removed.

As I have said previously, the Government are committed to a publicly owned Royal Mail, fully restored to good health, as our last manifesto made clear. In our view, partnershipa real, strategic and integrated partnership cemented through a minority share sale in Royal Mail Groupis the best way to deliver it. Amendments that remove our ability to achieve that would in effect sentence Royal Mail and its employees not to the status quo, because yet further decline would set in, but to inexorable decline and possibly worse. In my view, the employees of Royal Mail deserve better than a sentence of decline. They deserve a future that comes with Royal Mails own use of technology and innovation, of it becoming a real player in a wider marketplace. I therefore ask my noble friend to withdraw his amendment.

6.30 pm

Lord Morgan: We have had an interesting debate and I am grateful to all those who have participated, and I thank my noble friends Lord Hoyle, Lady Turner, Lord Clarke and Lord Lea for their support. I notice that the Liberal Democrat spokesman has disappeared from his place. He might as well have disappeared earlier because his comments were totally vapid. He simply made jokes about private grief and did not address any of the issues. We did not hear God gave the land to the people, and the contribution was nostalgic and unhelpful. However, the Minister was constructive and I am very grateful for his clear exposition.

There has been an assumption, including by my colleagues on these Benches, that an improvement in effective and efficient management necessarily means a change in share ownership, in the equity. I simply do not see the logic of that. I see no evidence that the kind of companies that have been mentioned would imply

24 Mar 2009 : Column 606

improvements in management. Indeed, my noble friend Lord ONeill gave an interesting example in his remarks of a self-sustaining prophecy. You begin by giving an account of the finances of Royal Mail, which are hopeless and devastating, and then ask who on earth would lend money to it. The answer is obviously that no one would. It is a well known logical trick and it was recreated by my noble friend.

The main point is that we have drawn from my noble friend on the Front Bench a clear explanation of the rationale linking efficiency with a substantial and perhaps increasing degree of privatisation. I want to make only two comments because we have important debates following this one. First, contrary to what my noble friend said, this is not a wrecking amendment at all. I think that that was an abuse of language. The amendment is intended to be constructiveit is meant to enable us to get around the great impasse over privatisation which is and will cause problems as it attempts to release the Post Office from this difficulty. My second point is not a debating trick, but it concerns my noble friends very distinguished grandfather. As my noble friend rightly said, he was a practical man. When he said that socialism is what a Labour Government do, the point was that he was distinguishing between public ownership and socialism; that is to say, public ownership is a technical and practical matter and not one of abstract doctrine. That is the spirit in which I have moved this amendment, in the spirit of Herbert Morrison, whom I greatly admire and have written about. I shall withdraw the amendment, but sufficient doubt has been raised to reconsider it on Report.

Amendment 5 withdrawn.

Amendments 6 to 8 not moved.

Clause 3 agreed.

Amendment 9

Moved by Lord Lea of Crondall

9: After Clause 3, insert the following new Clause

Membership of the Royal Mail board

The Royal Mail board shall comprise

(a) Crown representation,

(b) workers representation,

(c) corporate partners representation.

Lord Lea of Crondall: In the amendment I have identified three key and well known stakeholders represented in successful board models operated in northern Europe. Responsibility to shareholders is regarded in the amendment, as in much of northern Europe, not as the sole criterion of a businesss success. That works in northern Europe and this is a good opportunity to think how something like it might work here. Perhaps it is only due to a lack of imagination that we do not seem able to think through how to set up what I would describe as a social democratic model in this country. The debate about the corporate partner has already been held in part, and the three key stakeholders are the Crown, the corporate partner and the workforce.

24 Mar 2009 : Column 607

The noble Lord, Lord Bradshaw, criticised the Network Rail model. I would simply say that that model of finance illustrates the fallacy of the doctrine of there is no alternative to the raising of finance. I put this challenge to my noble friends on the Front Bench. Could they publishon an independent basis, although it would be derived from DBERR and Treasury assessmentsall the different models rather than simply say that there is no alternative or other model? If the whole of Hooper has to be accepted on the basis that it is a package deal and amendments are redundant or offensive, that makes us all redundant. There is no point in being here if that is the prior statement of the position. It has been put to us like that, so I am not being pedantic. I hope that we do not have to accept Hooper in its entirety as a magic solution. I hope we are not prevented from amending it in any way at all.

I see that there would be a business partner, but I want to say something about workers representation. One of the issues in a normal Companies Act company is that one cannot simply spatchcock in workers representation, because the only interest is that of the shareholders. There are ambiguities even in the Governments own model, and certainly there would be a new situation in the model I am proposing, particularly when it is linked with the other amendments we have been discussing. It would not be a typical Companies Act company. However, can my noble friend, who is highly skilled in these matters, tell us in what sense the Governments model is a typical Companies Act company, when clearly it is not? We ought to analyse this in a little more detail, and if invited, we would all be ready to discuss it and see if any fresh light can be thrown on it.

As far as board membership by the workforce is concerned, I used to think that I was a radical and a progressive in meeting the attitude seen in the trade union movement that you could not possibly have any form of partnership or worker representation because that would undermine confrontation through the single channel of collective bargaining. This is perhaps a field on which my noble friend cannot reflect without a caricature of the 1970s in her mind, but some of us used a great deal of our limited political capital to become heretics. We all have to be heretics at some stage in our lives, howled down for talking about something that is quite unrealistic. But we do not yet have a clear social democratic model of society to put before the British people. I say that because, given the world economic crisis, something new has to emerge from this chrysalis.

There was a progressive experiment in the 1970s in which my right honourable friend Alan Johnson, the Secretary of State for Health, was one of the worker members of the supervisory board set up at that time. It worked quite well. The only reason it did not get down nearer to grass-roots level is that it was in its early days when the plug was pulled by Mrs Thatcher.

I repeat: this model works quite well in northern Europe in different forms. It gives some metaphorical ownership to the workforce. That is far more relevant to the modernisation programme than the shares question, which I think is a big red herring. BT shares started off at £20 and are now £1, but this is nothing to do with

24 Mar 2009 : Column 608

that; this is to do with the fact that a number of workers representatives are signing off the modernisation programme. It is simple in principle but what is happening at the moment is a bit of a contradiction. We are hearing that the union is useless; the workers are useless; industrial relations are useless; everything is uselessand yet the only magic wand is to bring in private equity and that will solve the problem of industrial relations. If I was in a pub and said that, people would say, You must be joking.

We have to consider what kind of business model is most conducive to change and modernisation at the present time. The last thing we want is a climate of suspicion and insecurity and no information. But on the Governments model there will be no stock-exchange-sensitive information. Yet how can you have the workforces full involvement in modernisation without providing information about, for example, the capital investment and the arithmetic on introducing automation? A new technology agreement, however it is arrived at, will crucially depend on information being shared. We have got to get beyond the stock exchange rules governing everything that happens. This is different from many other sectors of the economy.

The biggest resource of the Royal Mail by a mile is of course its workforce, but one point that has not been made is that we are talking here about productivity on established sites. We are talking not about greenfield siteswhich I fully acknowledge DHL and TNT are experts in creatingbut about sites and philosophies of industrial relations, industrial sociology or whatever you like to call it, which have been around for a long time. It is not a fashionable subject to talk about these days but I would be much happier if the Secretary of State and other Ministers occasionally acknowledged that this is a difficult nut to crack. It follows that if rapid change is to be the name of the game and is to be supported by the workforce, there has to be a partnership. You can have rapid change by running down the Post Office and doing unmentionable things to the workers representatives, but no one is suggesting that. If we are to have some degree of ownership, in a metaphorical sense, and mutual understanding and resonance, we need this model of worker representation.

6.45 pm

I fully acknowledge that anyone, including my noble friends on the Front Bench, could ask me how this would work, that would work and the other thing would work; but we are now at Committee stage and it is high time to expose not only the pros and cons of the financial models but the magic solutions which are supposed to transform industrial relations. I am very pleased that surveys have shown that something like this model could, given a fair wind, have the support of the workforce. It worked well in the 1970s when they were getting to grips with modernisation.

We have to remove the suspicion of the workforce that it will be 30 per cent now, 50 per cent later, and then it will be privatised and everything will be up for grabs. If we are to remove that suspicion, there will have to be a transformation of some of the structures that give workers an input. I trust that my noble friend will recognise that this is a constructive contribution.

24 Mar 2009 : Column 609

She perhaps will not say, This is a good idea. We will accept it today, but new thinking has got to be given to improving workforce participation and solving the ownership problems, because they form two-thirds of the issues we are facing.

My noble friend Lord Brooke was quite right to quote the Hooper report, and obviously the issue of finance is important. But if you analyse the increasing loss, you have to take into account that there is a world recession and the ongoing problem of letters in Lands End and John OGroats. I am not sure how the cross-subsidy relates to the government subsidy on guarantees of delivery, but we know that that is what the British people want. Indeed, put round the other way, have the Government now decided that they do not accept that that is what the British people want? I think the Governments position is that that is what the British people want but the only way to give them what they want is to sell the family silver to get some money, and then to bring in a private sector partner whose interest would ultimately be to merge it into their own business.

Obviously the board structure I am proposing is not like that. It is an idea whose time has come, and it is in favour of modernisation, not against it. I beg to move.

Lord Clarke of Hampstead: In listening to my noble friend speaking about the 1970s, I was reminded of an exciting experiment in industrial democracy within the Post Office which set up boards on which union representatives were members. It was not necessarily only union members because anyone could stand for election, but it was unlikely that anyone else would be elected. The key was that representatives were elected at a local level. In north-west London, where I come from, two of our people were on the local board and two people were elected at regional level. In fact, the noble Lord, Lord Sawyer, was a board member for the north-east region at the time and played a part. At national level, two officers were elected by ballots of the membership and they were accountable. Built into this experiment in industrial democracy were accountability and the need for the people who were placed on these boards by their trade unions or by the workforce to answer questions. Sometimes they were difficult questions for those people to answer. Sometimes they had information at the board meetings, at whatever level, that they had to convey to their colleagues, and it was not always understood. This came in after some people tried to copy the method from Deutsche Postgewerkschaft of workers participation, which it described as codetermination. The British experiment was supposed to build upon that.

As I say, there were problems, but the experiment opened lots of doors and windows to people realising that, given this responsibility, their friends were able to convey real concernsin those days, mostly about productivity and the introduction of improved working methods when facing and cancelling tables were brought in. By and large, it worked. The tragedy is that after the election that the noble Baroness, Lady Thatcher, won, one of the first things she did was to abolish the experiment. That was sad. I just wanted to let the Committee know that there is not much new in this

24 Mar 2009 : Column 610

world. This method has been tried. My noble friend Lord Lea has suggested that we have worker representatives, and if this proposal ever sees the light of day, we should try to go back to the days when they were at all levels. That is a better conduit for understanding problems than megaphone diplomacy.

Lord Morgan: I have already detained the Committee a great deal today. I shall take, at most, one minute now. I have two small points to make in support of my noble friend Lord Leas amendment. The first is that it indicates that those of us who have taken a critical view of some aspects of the Bill are not Luddites; our minds have moved on since the Tolpuddle martyrs, and we see this as an opportunity for remodelling the structure of management and the board in a constructive way so that something new can be done. It would be wrong to paint us as being totally negative and defensiveor, to use the analogy from the Darwinian world, dinosaurs.

The other point is that, as a historian, it seems to me that this is a chance to reclaim one of the great lost opportunities of post-war Britain, the Bullock report of 1976-77, which was strongly supported at the time by the greatest living trade unionist, Jack Jones, and proposed a formal structure. I recall being told by the late Lord Callaghan how the people working on the Bullock report were sent to Germany and had a seminar with Chancellor Helmut Schmidt, who described how German economic performance had been improved by codetermination. This could be a chance to grasp what was a key missed opportunity to change the adversarial system of industrial relations in this country.

Lord De Mauley: The noble Lord, Lord Lea, raises an interesting point that adds to the debate we had on Amendment 4. As in so many areas, there is a great deal of confusion over how control of the privatised Royal Mail will be exercised. I would like to explore what influence the private sector minority partner will have.

I am sure that the Minister will inform your Lordships that details of what the partnership will look like are impossible to go into at this early stage, there being as yetas the Secretary of State has assured usno deal on the table to be discussed. Helpfully, though, when we discussed Amendments 4 and 10 he was at least able to confirm that the Government will specifically ensure representation for the private partner on the board. Anything else the Minister can tell us about the shape and detail of the partnership and its management would be helpful, particularly what sort of control the Government see the private sector havingcontrol over modernisation presumably being something the Government expect to cede, because they have given it as a major reason for the whole exercise. How do the Government see this being structured and exercised?

The Parliamentary Under-Secretary of State, Department for Business, Enterprise and Regulatory Reform & Cabinet Office (Baroness Vadera): I am grateful to my noble friend Lord Lea. I was interested in the philosophical points that he raised about the social democratic model but, if I may, I will stick to discussing the amendments at hand and the more specific points that he made.

24 Mar 2009 : Column 611

My noble friend asked for an independent review into alternative models. That is exactly what we did; we had the Hooper review, which consulted widely, considered alternative models for preserving the universal service while delivering modernisation, and came up with a package of measures to achieve those objectives.

Lord Lea of Crondall: I am sorry to ask my noble friend to give way, but it was in precisely this area that the analysis in the Hooper report was superficial and contradictory. Why say that the Hooper report is sacrosanct and we must accept it, as if it is a package that cannot be amended? A Treasury Minister in the House of Commons said, You cant amend it because its a package in every respect. I ask my noble friend to reread the Hooper report and say, if she were marking an examination paper, whether she would give the section on how management and the equity stake could magically transform industrial relations any more than a beta minus.

Baroness Vadera: I can certainly commit to rereading the Hooper report many times between now and Royal Assent, and indeed well into the negotiations of the strategic partnership. Richard Hooper considered the not-for-profit and not-for-dividend models and concluded that they were not appropriate for Royal Mail; they might have been more appropriate for more stable industries, such as water. Richard Hooper was clear about the risks that the Royal Mail was facing, which we have already discussed, with regard to e-mail substitution, the pension deficit and facing competition, and that there was significant structural change in the market. He concluded that what we had was correct.

The Royal Mail is currently a company governed by company law. It has a board that discharges its duty in the interests of the shareholders, and it will continue to remain a company under the Companies Act. It is in that situation that the fiduciary responsibility of a board member is to the company and its shareholders, not to any special interest group or stakeholders. Indeed, the issue that is discussed in the report, and that we have discussed, is having the appropriate set of directors with commercial expertise able to deal with the modernisation of a company facing the competition and liberalisation that this company does.

We recognise the central importance of the workforce in the future of the Royal Mail; indeed, that is what the transformation of the Royal Mail is going to be about. A change is certainly required in industrial relations and the climate of, to quote my noble friend, suspicion and secrecy that has sometimes invaded the company. The workers are the backbone of the company. We are not opposed to the employees views being represented on the board if that would enhance the boards effectiveness in fulfilling its role, so long as it was able to fulfil its fiduciary responsibility where the companys interests in the round came first.

The Committee will be aware that the Royal Mail already has a much respected trade unionist on the board: my noble friend Lady Prosser. Prior to her appointment in 2004, trade union experience was provided by Derek Gladwin and John Lloyd. We also know that the partner will have a view on this and that board composition will be a matter for negotiation and will be reflected in the shareholder agreement.

24 Mar 2009 : Column 612

Before we considered an amendment, we would have to be persuaded that another form of direct worker representation on the board would make a real difference to the transformation and modernisation of the Royal Mail and deliver the change that is necessary for the company. We do not believe that that case has been made. We would be obliged, therefore, if my noble friend could see his way to withdrawing the amendment.

The noble Lord, Lord De Mauley, asked about the shareholder agreement. I believe that this issue will be dealt with in Amendments 20, 21 and 22. Perhaps I may provide my answers then.

7 pm

Lord Lea of Crondall: I thank my noble friend for that reply, which has been very revealing. I was a member of the Bullock committee, which my noble friend Lord Morgan mentioned, and matters of accountability were looked at in great detail. I am very sorry that my noble friend Lady Vadera has simply repeated, parrot-fashion, what company law is at present; we all know what company law is at present. My noble friend has reiterated that, despite all the innovations and complexities, this is a Companies Act company. Responsibility is solely to the shareholders, if there are shareholders. My noble friend said that we have no responsibility to interest groups, yet the workforce is 90 per cent of the value added. The Royal Mail is not a particularly highly capitalised company. It should be more capitalisedthat is what we have been debating. But for the value added, the workforce, now to be described as an interest group and not part of the systema system which is broken, according to some, including the Governmentis a huge contradiction.